U.S. crude rose more modestly, constrained by worries about surplus supplies at Cushing, Oklahoma. Brent's premium over U.S. crude widened, at one point hitting the biggest spread this year.

Financial markets got a lift from purchasing managers' indices in Europe and data on the U.S. services sector. Also, stronger-than-expected earnings lifted the Dow Jones industrial average above 14,000, a day after the market's biggest sell-off since November. The S&P 500 and Nasdaq stock indexes each gained more than 1 percent.

"The S&P 500 has recovered its confidence and there's support for oil prices related to that," said Timothy Evans, energy analyst for Citi Futures Perspective in New York.

Brent's premium to U.S. crude increased to $20.34, the widest this year and just short of the 100-day moving average. The spread settled at $19.88, 45 cents wider than Monday's close.

Expectations that stocks at the Cushing, Oklahoma, delivery point for the U.S. contract may keep rising are weighing on the U.S. benchmark, traders have said.

Brent crude settled up 92 cents a barrel at $116.52 in volatile trade. During the session, it fell as low as $115.01 and climbed as high as $117.23, its highest point since mid-September. Brent is up more than 5 percent in 2013.

U.S. crude added 47 cents to $96.64.

Supply of the four North Sea crude oil grades that underpin the Brent futures contract is expected to fall in March, according to loading schedules, supporting Brent prices.

Traders were also eyeing news Magellan Midstream Partners LP's reversed Longhorn Pipeline would begin filling with crude in mid-March and reach its 225,000-barrel-per-day capacity in the third quarter. The line will deliver crude from West Texas to the Gulf Coast refining center.

Oil traders were also awaiting weekly on U.S. oil inventories, which are expected to rise by 2.8 million barrels, a preliminary Reuters poll found on Monday.

The American Petroleum Institute, an industry group, will release its report late Tuesday, while figures from the government's Energy Information Administration are due to follow on Wednesday.

(Additional reporting by Alex Lawler in London and Ramya Venugopal in Singapore; editing by James Jukwey and Andrew Hay)